B-178108, APR 9, 1973

B-178108: Apr 9, 1973

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PERMANENT CHANGE OF STATION - "CLOSING FEE" INCIDENT TO PURCHASE OF NEW RESIDENCE - REIMBURSEMENT DECISION DENYING REIMBURSEMENT OF SERVICE CHARGE CONSIDERED AS PART OF THE COST OF MONEY AND AS SUCH A FINANCE CHARGE FOR WHICH REIMBURSEMENT IS PRECLUDED. ABSENCE OF ITEMIZATION SHOWING WHAT OTHER PARTS OF CHARGE WAS FOR PRECLUDES ALLOWANCE OF ANY PART OF THE CHARGE. YOUR DOUBT IN THE MATTER ARISES BECAUSE THE "CLOSING FEE" IS A CHARGE ASSESSED ON A PERCENTAGE BASIS. WAS ADMINISTRATIVELY APPROVED WHILE A "CLOSING FEE" OF $386.25 WAS DISALLOWED. THE LATTER AMOUNT WAS 1 PERCENT OF THE PRICE OF A MORTGAGE RELATING TO THE PURCHASE AND DESIGNATED AS A CLOSING FEE ON BOTH THE BANK STATEMENT AND MR. WAS ASKED TO EXPLAIN WHAT THE AMOUNT REPRESENTED.

B-178108, APR 9, 1973

PERMANENT CHANGE OF STATION - "CLOSING FEE" INCIDENT TO PURCHASE OF NEW RESIDENCE - REIMBURSEMENT DECISION DENYING REIMBURSEMENT OF SERVICE CHARGE CONSIDERED AS PART OF THE COST OF MONEY AND AS SUCH A FINANCE CHARGE FOR WHICH REIMBURSEMENT IS PRECLUDED. ABSENCE OF ITEMIZATION SHOWING WHAT OTHER PARTS OF CHARGE WAS FOR PRECLUDES ALLOWANCE OF ANY PART OF THE CHARGE.

TO MR. JAMES L. HUMPHREY:

WE REFER TO YOUR LETTER, WITH ENCLOSURES, DATED FEBRUARY 28, 1973, REQUESTING AN ADVANCE DECISION ON THE PROPRIETY OF CERTIFICATION OF A TRAVEL VOUCHER SUBMITTED BY MILO L. WIETSTOCK, AN EMPLOYEE IN THE DETROIT REGIONAL OFFICE, FOR REIMBURSEMENT OF A "CLOSING FEE" PAID INCIDENT TO HIS PURCHASE OF A NEW RESIDENCE FOLLOWING A PERMANENT CHANGE OF STATION. YOUR DOUBT IN THE MATTER ARISES BECAUSE THE "CLOSING FEE" IS A CHARGE ASSESSED ON A PERCENTAGE BASIS.

ON OCTOBER 12, 1972, MR. WIETSTOCK SUBMITTED VOUCHER NO. 7050-DT-73 151, CLAIMING AMONG OTHER THINGS, REIMBURSEMENT OF $582.55 FOR EXPENSES INCURRED IN PURCHASING HIS NEW RESIDENCE. OF THAT AMOUNT REIMBURSEMENT FOR LEGAL AND RELATED COSTS, A LENDER'S APPRAISAL FEE, A CREDIT REPORT AND A MORTGAGE TITLE POLICY, TOTALLING $196.30, WAS ADMINISTRATIVELY APPROVED WHILE A "CLOSING FEE" OF $386.25 WAS DISALLOWED. THE LATTER AMOUNT WAS 1 PERCENT OF THE PRICE OF A MORTGAGE RELATING TO THE PURCHASE AND DESIGNATED AS A CLOSING FEE ON BOTH THE BANK STATEMENT AND MR. WIETSTOCK'S TRAVEL VOUCHER. WHEN THE MORTGAGEE, THE GUARANTY FEDERAL SAVINGS AND LOAN ASSOCIATION, WAS ASKED TO EXPLAIN WHAT THE AMOUNT REPRESENTED, IT REPLIED THAT IT WAS:

*** A SERVICE CHARGE AND NOT AN INTEREST CHARGE. THIS SERVICE CHARGE IS TO COVER SUCH THINGS AS TIME, EFFORT, AND SUPPLIES NEEDED TO PREPARE FOR THE CLOSING INCLUDING SUCH THINGS AS MAKING ARRANGEMENTS FOR A CREDIT REPORT, HAVING A TITLE SEARCH MADE, PREPARATION OF NECESSARY ABSTRACTS, ARRANGING FOR A PROPERTY SURVEY, NOTARY FEES, AND OTHER SIMILAR EFFORT.

SECTION 4.2D OF OMB CIRCULAR NO. A-56, AS REVISED, WHICH PERMITS REIMBURSEMENT FOR CERTAIN MISCELLANEOUS COSTS IN CONNECTION WITH RESIDENCE TRANSACTIONS PROVIDES IN PERTINENT PART THAT:

*** NO FEE, COST, CHARGE, OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. ***

UNDER SUCH PROVISION WHENEVER AN ITEM OF EXPENSE INCIDENT TO A REAL ESTATE TRANSACTION CONSTITUTES A FINANCE CHARGE WITHIN THE CONTEMPLATION OF REGULATION Z REIMBURSEMENT THEREFOR IS PRECLUDED. SECTION 106 OF THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS:

(A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY CONSUMER CREDIT TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE PERSON TO WHOM THE CREDIT IS EXTENDED, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO THE EXTENSION OF CREDIT, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES WHICH ARE APPLICABLE:

(1) INTEREST, TIME PRICE DIFFERENTIAL, AND ANY AMOUNT PAYABLE UNDER A POINT, DISCOUNT, OR OTHER SYSTEM OF ADDITIONAL CHARGES.

(2) SERVICE OR CARRYING CHARGE.

(3) LOAN FEE, FINDER'S FEE, OR SIMILAR CHARGE.

(4) FEE FOR AN INVESTIGATION OR CREDIT REPORT.

(5) PREMIUM OR OTHER CHARGE FOR ANY GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE OBLIGOR'S DEFAULT OR OTHER CREDIT LOSS.

(C) THE FOLLOWING ITEMS, WHEN CHARGED IN CONNECTION WITH ANY EXTENSION OF CREDIT SECURED BY AN INTEREST IN REAL PROPERTY, SHALL NOT BE INCLUDED IN THE COMPUTATION OF THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, TITLE INSURANCE, OR SIMILAR PURPOSES.

(2) FEES FOR PREPARATION OF A DEED, SETTLEMENT STATEMENT, OR OTHER DOCUMENTS.

(3) ESCROWS FOR FUTURE PAYMENTS OF TAXES AND INSURANCE.

(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

(5) APPRAISAL FEES.

(6) CREDIT REPORTS.

REGULATION Z (12 CFR, PART 226) WAS PROMULGATED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM PURSUANT TO THE TRUTH IN LENDING ACT, AND SETS FORTH THE FOREGOING IN SUBSTANTIALLY THE SAME FORM.

THE 1 PERCENT CHARGE ASSESSED BY THE LOAN ASSOCIATION IS DESIGNATED AS A SERVICE CHARGE AND THE DESCRIPTION AS HEREINABOVE QUOTED CLEARLY INDICATES THAT IT IS SUCH, I.E., A FEE FOR MAKING ARRANGEMENTS FOR VARIOUS THINGS TO BE DONE. IT MUST THEREFORE BE CONSIDERED AS PART OF THE COST OF MONEY UNDER THE TRUTH IN LENDING ACT AND AS SUCH A FINANCE CHARGE FOR WHICH REIMBURSEMENT IS PRECLUDED. SEE B-173152, AUGUST 2, 1971, AND B-176775, OCTOBER 25, 1972, COPIES ENCLOSED.

IN THE ABSENCE OF ITEMIZATION TO SHOW THAT THE CHARGE WAS FOR THE COST OF SEARCHING A TITLE, THE COST OF PREPARATION OF AN ABSTRACT, OR OTHER ALLOWABLE ITEMS, THERE IS NO BASIS FOR REIMBURSEMENT OF ANY PART OF THE CHARGE. SEE B-176663, FEBRUARY 20, 1973, COPY ENCLOSED.

THE VOUCHER WITH ENCLOSURES IS RETURNED HEREWITH AND MAY NOT BE CERTIFIED FOR PAYMENT ON THE BASIS OF THE PRESENT RECORD.